Antitrust and ebooks: regulators miss the big DRM lock-in picture

US antitrust regulators have never really been able to find the right place to stick their lever and pry when it comes to the Internet (witness their failure to understand Microsoft's platform dominance in the 90s). Now they're going after various publishers and Apple over price fixing (my publisher is included, and for the record, I don't agree with their stance on "agency pricing"), but they're missing all the big elephants in the room: platform lock-in by way of DRM, prohibitions created by both Apple and Amazon on using third-party payment systems on their apps, and all the associated ticking bombs that represent the real, enduring danger to the ebook marketplace. Every dollar that is spent on a locked, proprietary platform is a dollar of opportunity cost that society will have to spend to get out from under the would-be monopolists of ebooks when (not if) they abuse their power (see my latest PW column on this).

Wired's Tim Carmody does a really good job of pointing out the fail here, as antitrust regulators miss the forest of lock-in for the trees of abusive pricing.

What’s left out of the Justice department’s lawsuit might be even better news for Amazon than what’s included. There is no broader look at any of the anticompetitive vagaries of the e-book market beyond publishers’ negotiations with retailers in the period before and after the launch of iBooks.

The suit blasts most favored nation agreements without noting that Amazon has aggressively pursued MFN agreements with publishing partners, including partners whose books it sells wholesale. It’s completely silent on retailers’ and device manufacturers’ use of DRM to lock customers into a single bookstore. Amazon is purely a market innovator, not a budding monopolist, even as the DOJ notes that Amazon’s pricing power helped determine pricing power across the industry.

Blogger Mike Cane wrote a powerful email to attorneys at the Department of Justice listed in the lawsuit titled, “Dear DoJ: You Need To Sue Apple Again.” It cites Apple’s in-app purchasing rules that prohibit Amazon, Kobo, Barnes & Noble and other retailers from offering books for iOS devices on the same terms that Apple can offer in iBooks, without browser workarounds.

This, Cane says, “is every bit as much restraint of trade as the collusive price-fixing that made the Department bring Apple and its co-conspirators before the court for remedy.”

But it’s actually great news for Amazon that the DOJ isn’t opening up restrictions on in-device purchases. Once thrown, that stone bounces back to hit Amazon in the face right away.

Jeff Bezos Should Send Eric Holder a Christmas Card


  1. can this argument be applied to Sony Entertainment – that any game purchased through the platform called PlayStation Network can only be used within a ranged of devices (PS3, PS Vita, etc), and you have to pay through Sony’s ‘wallet’; while, Microsoft is doing the same thing, with Live Marketplace and XBOX360 through Marketplace ‘points’. 

    my point being – the argument in this particular ebook scenario has some far reaching implications, implications what would involve some very entrenched business practices of multi-billion dollars worth  industries. i am doubtful that the politicians are up to the task of challenging systems that are NOT deemed ‘broken’ by the public.

    1. Started writing up a replay saying no… but after consideration of your point I have to agree with you, although I think a better presentation would be:

      You can only buy games for the Xbox/Playstation/Wii that have approved DRM and have already paid the vendor a hefty sum just to get approval – why can’t someone play any game developed for the system sold through any channel?

      Which really is a good point – why can’t you just hook into Steam and download games if you so desire – or buy them from indie dev. directly?  These are platform lockouts that would also be affected by the DRM argument in ebooks.

  2. This is why I have no moral issue taking everything my internet connection can find. In the eyes of corporate marketing departments we are merely pawns for manipulation in their game for maximum profit. Don’t play their game. Steal this _______.

    1. Does that include the works of  smaller artists and publishers who offer their content DRM-free?

  3. This would be why I only purchase ebooks that are DRM-free or ebooks that I know I can simply strip the DRM off. I also try to make a point of evangelizing this concept not by talking about freedom and corporate greed, but my offering to lend friends a book that I like. That way *they* can be the ones to have the revelation about the pragmatic reasons to avoid DRM.

  4. Amazon must be laughing their ass off right now. The price-fixing came about because of Amazon’s strategy of selling books at a loss in order to (a) attract download customers to Kindle for future purchasing, and (b) drive their competitors out of business. Let’s not forget that Amazon is also a publisher, not just a retailer. And they have started demanding exclusives on content offered under their imprint (as Apple has attempted to with books published under their relatively new publishing system).

    The monopolistic practices of Apple and Amazon extend to proprietary format, restriction on allowance of purchased media on competitor devices, restriction of approved OS on purchased devices, bricking (we can bring Sony in on these) .

    In the face of these very fundamental issues (and the DRM issues of the article), the DoJ suit over price fixing is a gnat fart in a hurricane.

  5. Unfortunately, DRM is not illegal. Collusion is. And DOJ can only enforce the law that is, not the law that might be.

    Ever since the recording industry pulled of the theft of the century with the transition from LPs to CDs (twice the price to buy but half the cost to produce, sell them to the rubes on convenience), every content provider has been aiming at the same target. Publishers are just the latest. Starting with Follett’s last novel, they’ve been trying to sell eBooks for more than paper books, arguing that the convenience is worth it. The difference is that the recording industry just blundered into it. Publishers have been conspiring to reproduce the phenomenon, and that has been illegal since 1890. It is no mystery to anybody. All these guys learned about the Sherman act in business school. You can see that by the fact that they tried to destroy evidence to cover their tracks.

    Whatever evil Amazon may have done is irrelevant to this case. The fact that DRM lockin should be illegal but isn’t is also irrelevant. It does not excuse the publishers’ actions. They broke the law and they should be punished. When Amazon breaks the law, it should be too.

    1. I’m not sure that I see any evidence of collusion though. The launch date of the iPad/iBookstore provided a single fixed date for any publishers who wanted to have a presence on that platform, and as soon as they had the opportunities to do so, publishers brought the prices of their ebooks closely in line with the retail prices of their paper books – which are all also pretty similar across publishers.

      If I am understanding you correctly, you seem to see some illegality in the publishers’ decision to keep e-book prices similar to paper book prices even though the marginal cost of production for the former is much higher than that of the latter. But this would fail to take into account not only the fact that a publisher’s fixed costs do not disappear when they start selling ebooks in addition to paper books, but also that prices are (and should be) set by supply and demand, not costs of production.

      1.  And your argument fails to take into account that Wal Mart buys physical books and puts them in the front of the store and sells them for less than they paid the publisher for…. less than Barns and Nobel can buy the book for – and takes a loss on it.

        Wal Mart does this and gets away with it because they pay the same price to the publisher for the book even if they sell it at a loss.

        Amazon tried to do the same thing and got called a thief and a scoundrel and a scallywag buy the dinosaurs that want to think this is some big scheme to rip off the publishing industry. 

        Grow up – the ebook has DRM wrapped around it making it impossible to lend/sell/give away/etc.  along with the 1000 other reasons why ebooks are a better market for the publisher and should result in vastly more money there is no reason why an ebook should be so close to the price of a paper book.

        Supply and demand would be a fantastic argument *if* the publishers were not making back room deals to allow one player (Apple) to discount books while not allowing another player (Amazon) to do the same.

        Supply and demand would actually require a limited supply (which doesn’t happen in a digital media) and a price structure that *changes* with demand.

        Loss leaders are a *key* point of brick and mortar retail and have been for a very long time – to act like the digital world is so scary and new that you can’t use the sames kinds of sales tactics just shows that this is about control more than about real economics.

        1. Amazon tried to do the same thing and got called a thief and a scoundrel and a scallywag buy the dinosaurs that want to think this is some big scheme to rip off the publishing industry.

          Due to Amazon’s dominance in e-book retail, the ability to drastically increase that dominance through loss-leader pricing in a nascent market and the the lock-in effect of Amazon’s proprietary platform, and the re-anchoring effect such an action would have on consumer price expectations. Of course, Amazon has the right to be this aggressive on the platform it has developed, but the publishers also have the right to negotiate with the threat of abandoning said platform.

          Grow up


          there is no reason why an ebook should be so close to the price of a paper book

          Well, apart from the reason that many people value the text within a book for about that much. People do not really buy books for the paper… or for having the paper delivered to them. Of course, everyone remains free to challenge this by undercutting those prices. Indeed, with the comparatively paltry cost of digital publishing, there is plenty of scope for cutting out the publishers altogether.

          Supply and demand would be a fantastic argument *if* the publishers were not making back room deals to allow one player (Apple) to discount books while not allowing another player (Amazon) to do the same.

          And I see no evidence that they did this. As I tried to calmly explain in my original post.

          Loss leaders are a *key* point of brick and mortar retail and have been for a very long time

          And charging vastly more for an international connection was a “*key* point” of telecommunications for a long time. Progress disrupts obsolete business models. Retail, at its core, involves buying things in bulk and selling them piecemeal at a markup. While this contributed value for physical goods in a poorly-connected world, it contributes little value for digital goods in a highly networked one. The creator should get the money from the consumer, and anyone who (as an ‘agent’ of the creator) helped to bring the two together should get some cut. Transferring wholesale ownership to some intermediary, on the other hand, made a lot more sense in the 19th Century than it does in the 21st.

      2. No, I see illegality in the accusations made by the Justice Department, should they prove to be true. DOJ states that publishers met on several occasions to work out a common pricing strategy and a common approach to combating Amazon. That is classic collusion and is exactly the behavior the Sherman act outlaws. Apple was involved in passing messages between publishers on these topics, with the intent of eliminating its competitive disadvantage relative to Amazon (at least, disadvantage given the fact that Apple historically prefers to have staggering profit margins). It is less clear whether that is illegal, but it ought to be since it is in furtherance of a clearly illegal conspiracy. However, several Supreme Court decisions make that less certain.

        Further, publishers are not keeping eBook prices “similar” to paper prices. They intend (and have stated on several occasions) their intent to make eBook prices HIGHER than paper prices. They justify this by claiming that people will be happy to pay more for “convenience.” See, for example, here:

        and here:

        and here:

        What they want to do is reproduce what the music industry was able to do in the 1980’s when they discovered that people were willing to pay $20 for a CD that contained the same music as a $7 LP because of the greater convenience. This despite the fact that CDs were in fact cheaper to produce than LPs.

        But their motive is not illegal. Their actions in furtherance of that motive are, assuming DOJ is correct about what they did.

  6. I have a question about this:

    “Blogger Mike Cane wrote a powerful email to attorneys at the Department of Justice listed in the lawsuit titled, “Dear DoJ: You Need To Sue Apple Again.” It cites Apple’s in-app purchasing rules that prohibit Amazon, Kobo, Barnes & Noble and other retailers from offering books for iOS devices on the same terms that Apple can offer in iBooks, without browser workarounds.”

    Does this differ from what Amazon does on their Kindles?  After all, I can’t buy books from retailers other than Amazon on the Kindle store.  Granted, I routinely get books from other sources and, if necessary, strip DRM so I can read them on my Kindle anyway.  Is that the difference?  Not trying to be snarky, just trying to understand if the same argument applies.

  7. I suspect the problem is that the  lobbyists have almost overly well sold the idea of DRM as a good thing. This means that you have the cognitive dissonance of DRM good and market manipulation bad that makes them unable to see that DRM is what enables the market manipulation in the first place.

  8. Seems every comedian is following the Louis C K model and releasing their specials as a DRM free $5 download from their own website – Jim Gaffigan is the latest. How long before authors are also self publishing, it just takes a few to prove the model and I think those who can will follow, new writers especially. That is Amazon’s real competition.

    1. I am seeing more and more authors releasing their content in the DRM free EPUB format. The EPUB file is sold directly on their website and they trust customers to buy their own copies.

      BTW, Sigil is a decent open-source, cross-platform EPUB editor:

  9. The Porn industry has been a major innovator, inventing and devising ways to get as much money as possible from theirs and others products. 

    One of these money makers is a video player paired with it’s own format. Their customers have to purchase the player to view their product. My partner is a porn addict and you should see the list of players he has.  Open source has found ways to remedy this, like the excellent VCL player, which plays just about anything. 

    For eBooks, the same will happen, it has to.  That’s the beauty of open source, thousands don’t have to express a need; it takes only one savvy disgruntled customer.

    One person can possibly change a large corporations sleazy momentum, like Robin Hood.

  10. Cory, you’d lose at the lawyering game pretty much immediately. “Your Honor, and members of the jury, the lawsuit we are here to discuss, folks, is not the matter we should be discussing….so let’s talk about draconian copyright protection.”


    And I say that knowing you’re right. DRM sucks. Balls. Big ones. But, you know what, the topic that the suit addresses, is also important. Yes…it is! 

    Apple told the publishers that it would sell their books at whatever price they wanted (already a little…uh…huh? you mean your primary client isn’t the consumer, it’s the publisher? hm… me tink you toopid), but only if they (and by extension, all other ebook retailers) never sold those titles for less. That’s called F**K NO. And it’s really really dumb too. Publishers previously got whatever wholesale they charged Amazon for the rights to resell the digital files, pegged sorta to the paperback standards of the day. So, kinda just like the physical deal, because Amazon, like other stores, pays about 50% of MSRP of physical titles (if a paperback is $15 on the back cover, amz, bn, etc pay about $7.50 per.) Then whatever they want to do with that book, they can. Sell at a loss? Go right ahead. Sell at cover price? Go ahead and try. Somewhere in the middle? Alrighty! Good deal! Not bad! More money for moi, they’d say. You’d think.

    So, what was wrong with that carrying over to the digital world? I don’t get it. 

    The publishing business is, by and large, fucked. Has been for some time. The vast majority of books are sold at a loss. Are printed at a loss. Are distributed at a loss. It’s like 90% charity 10% standard 1040. That, to me, reads as incredibly unhealthy. Maybe sustainable. But barely. Always barely. Always coughing. Always sweating. Always borderlining.

    Digital kinda helps that. Kinda takes the weight off, don’t it? Nothing to print. Nothing to bind. Nothing to ship. Nothing to regret. (Or, much less, anyway. Editing hasn’t gotten cheaper, unless you consider the outsourcing indust. coming in.)

    But digital is EVIL. Digital is EASY. Digital is EVERYWHERE…. 


    Meanwhile, more self-published product is getting out there and getting decent traction. Very few lottery winners, sure. But more just general good vibes. More sustainable enterprise. And no more months of rejection letters. No more superfluous gatekeepers. Want to go the traditional route? Go for it. But would you rather just post it and see what happens? Now you can. Meanwhile Macmillan and others fight the old fight. Such a big grudge. Such fucking assholes people are, wanting shit for cheap. Wanting shit for FREE. Wanting to steal steal steal!

    Keep bitching, guys. Keep fucking digging.

    Shoulda woulda coulda!


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